PWBA Office
of Regulations and Interpretations

Advisory
Opinion

This is in response to your request for an advisory opinion regarding the
"direct expenses" provisions contained in Department of Labor (the
Department) regulation section 2550.408b-2(e)(3)
and the prohibitions of section 406(b)(3) of the Employee Retirement
Income Security Act (ERISA). In particular, you ask whether a company providing
services to its own pension plan may receive fees from certain mutual funds
which the company has selected as investment options for participants in the
plan as "reimbursement" for "direct expenses" incurred in
providing services to the plan.

Your request contains the following facts and representations. Aetna
Services, Inc. (Aetna), a Connecticut corporation, is a holding corporation
whose subsidiaries include financial institutions. A wholly-owned indirect
subsidiary of Aetna, Aetna Life Insurance and Annuity Company (ALIAC), advises
certain investment companies registered under the Investment Company Act of
1940 (mutual funds) and provides recordkeeping and other administrative
services to employee benefit plans, including the Aetna Services, Inc.
Incentive Savings Plan (the Plan), a participant-directed defined contribution
plan sponsored by and covering employees of Aetna and its subsidiaries. The
Plan's governing documents permit the Plan to pay costs and expenses for
services necessary to the operation and administration of the Plan. Aetna is
the Plan administrator. The Plan's trustee is a bank that is unrelated to
Aetna.

Aetna selects the investment options that are made available to the Plan's
participants. The investment options that are currently available to Plan
participants include mutual funds that are advised by ALIAC and mutual funds
that are not advised by ALIAC and are otherwise unrelated to Aetna. Aetna,
through its wholly-owned subsidiary, ALIAC receives from the unrelated mutual
funds (or their advisers or distributors) fees for providing certain
shareholder services (including, e.g., maintaining shareholder ownership
records for each fund on a client-by- client basis, providing prospectuses and
other shareholder information materials to client investors, and handling of
proxy voting materials) to the unrelated mutual funds in connection with
investments by client plans.1 The fees for these
services are generally based on a percentage of plan assets invested in each
mutual fund, and are paid either pursuant to a distribution plan described in
Securities and Exchange Commission Rule 12b-1, or as administrative expenses
paid in lieu of the mutual fund's transfer agency or other administrative fees.

Aetna wishes to receive fees from the unrelated mutual funds in return for
providing shareholder services in connection with elections by Plan
participants to invest in the mutual funds. Aetna wishes to receive such fees
on the same terms and in the same amounts as the fees it receives for other
client investments in such mutual funds. Aetna has proposed to begin accepting
the fees payable to it by the unrelated mutual funds in connection with Plan
investments as reimbursement of the expenses it incurs in providing
recordkeeping and other administrative services to the Plan, which amounts
would otherwise be paid to Aetna directly from the Plan's assets in accordance
with the terms of the Plan.

You represent that Aetna has developed methods for determining the dollar
amount of its reasonable direct expenses incurred in the provision of services
to the Plan within the meaning of regulation 29 C.F.R. 2550.408c-2(b)(3). In this regard, Aetna represents that it will
seek reimbursement solely for expenses that Aetna would not incur but for its
provision of services to the Plan, e.g., salary and benefits paid to certain
employees who are engaged full-time to provide administrative services to the
Plan, and whose position would be terminated if Aetna should cease providing
services to the Plan, charges for telephone services dedicated to answering
participant inquiries and taking participant investment directions, and the
cost of office supplies, including paper stocks for printing participant
information materials, used in connection with the provision of services to the
Plan. Aetna anticipates that the aggregate of fees that it would receive from
unrelated mutual funds in connection with elections by Plan participants to
invest in unrelated funds will not exceed its reasonable direct expenses
determined as described above.

If the fees received from the mutual funds exceed Aetna's reasonable direct
expenses, you represent that Aetna would take one of three courses of action.
Aetna may decide to provide additional services to the Plan, either itself or
through an unrelated third party. These services would be paid for with the
fees in excess of Aetna's direct expenses. If Aetna determines that providing
additional services to the Plan is not necessary and appropriate, it will then
consider whether applicable law (including the Internal Revenue Code and
Federal securities laws) would permit the payment of such excess fees into the
Plan, and whether doing so would be administratively feasible. If Aetna
determines that paying the excess fees into the Plan is not appropriate (for
legal or administrative reasons), Aetna will waive the excess fees by
requesting that the unrelated funds not pay these amounts.

You represent that Aetna is a fiduciary with respect to the Plan under ERISA
section 3(21)(A) by reason of its discretionary authority in the administration
of the Plan, including its selection of the Plan investment options, and thus
is a party in interest with respect to the Plan under section 3(14)(A) of
ERISA.

You request an opinion that, under the circumstances described, receipt by
Aetna of mutual fund fees may be construed as reimbursement for its direct
expenses incurred in providing services to a plan within the meaning of
Department regulation
29 C.F.R. 2550.408c-2(b)(3), and thus would not violate ERISA section
406(b)(3).2

Section 406(b)(3) of ERISA prohibits a fiduciary from receiving a fee or
other consideration for his or her own personal account from a party dealing
with a plan in connection with a transaction involving the assets of the plan.

Section 408(c)(2) of ERISA provides, in relevant part, that nothing in
section 406 shall be construed to prohibit any fiduciary from receiving
compensation for services rendered, or for the reimbursement of expenses
properly and actually incurred, in the performance of his or her duties with
respect to a plan.

Regulation 29 C.F.R. 2550.408b-2(a) indicates that ERISA section 408(b)(2)
does not contain an exemption for an act described in section 406(b) even if
such act occurs in connection with a provision of services which is exempt
under section 408(b)(2). As explained in regulation section 2550.408b-2(e)(1),
if a fiduciary uses the authority, control, or responsibility that makes him or
her a fiduciary to cause the plan to enter into a transaction involving the
provision of services when such fiduciary has an interest in the transaction
which may affect the exercise of his or her best judgment as a fiduciary, a
transaction described in section ERISA 406(b) would occur, and that transaction
would be deemed to be a separate transaction from the one involving the
provision of services and would not be exempt by section 408(b)(2).

Regulation section 2550.408b-2(e)(3) provides that if a fiduciary furnishes
services to a plan without the receipt of compensation or other consideration
(other than reimbursement of direct expenses properly and actually incurred in
the performance of such service within the meaning of §
2550.408c-2(b)(3)), the provision of such services does not, in and of itself,
constitute an act described in ERISA section 406(b).3 The term "reimbursement" is not defined in the
regulation. In the view of the Department, although the payment of fees by an
unrelated mutual fund may not be intended by the mutual fund to reimburse Aetna
for its direct expenses incurred in providing services to the Plan, to the
extent that the Plan and Aetna have expressly agreed to and do in fact use such
payments to reduce or eliminate the Plan's liability for Aetna's documented
direct expenses incurred in providing services to the Plan, such payments may
be considered "reimbursement" within the meaning of regulation
section 2550.408b-2(e)(3).

You represent that any fees earned by Aetna in excess of what is required to
reimburse it for its direct expenses will be applied to the provision of
additional services to the Plan, passed through to the Plan, or waived by
Aetna. Accordingly, it is the opinion of the Department that if Aetna credits
all payments received from the unrelated mutual funds in connection with
investments directed by Plan participants exactly against its "direct
expenses" incurred in providing services to the Plan, for which the Plan
would otherwise be liable, and provided that Aetna receives no compensation or
other consideration for such services, Aetna would not violate ERISA section
406(b)(3). We caution, however, that retention of any payments from the mutual
funds in which Plan participants elect to invest that exceed Aetna's
"direct expenses" would constitute a prohibited receipt of
consideration for Aetna's personal account under ERISA section 406(b)(3).

Finally, it should be noted that ERISA's general standards of fiduciary
conduct also would apply to the proposed arrangement, including any
determinations by Aetna concerning the disposition of any excess fees.
Accordingly, under sections 403(c)(1) and 404(a)(1) of ERISA, the responsible
Plan fiduciaries must act prudently and solely in the interest of the Plan
participants and beneficiaries with respect to the decision to enter into, or
to continue, the above- described arrangement with Aetna. In this regard, the
responsible Plan fiduciaries must assure that any compensation retained by
Aetna in connection with the investment of Plan assets constitutes no more than
reasonable direct expenses, taking into account the services provided to the
Plan.

This opinion does not address the effect of Federal securities laws on the
proposed arrangements. Such questions are within the jurisdiction of the
Securities and Exchange Commission.

This letter constitutes an advisory opinion under ERISA
Procedure 76-1 (41 FR 36281, August 27, 1976). Accordingly, this letter is
subject to the provisions of that procedure, including section 10 thereof,
relating to the effect of advisory opinions.

1 You have assumed, and the Department agrees,
that the receipt of fees by ALIAC, a wholly-owned subsidiary of Aetna, is
imputed to Aetna. Accordingly, the discussion in this letter is limited to
Aetna.

2 You have not requested an opinion, and the
Department expresses no view, as to whether contracting or making arrangements
for the provision of services by Aetna to the Plan is exempt from the
prohibitions of ERISA section 406(a) by reason of the exemption provided by
section 408(b)(2). Similarly, you have not requested an opinion, and the
Department expresses no view, concerning Aetna's activity with respect to
client plans that are not the Plan that is the subject of this advisory
opinion.

3 Regulation section 2550.408c-2(b)(3) provides
that an expense is not a "direct expense" to the extent that it would
have been sustained had the service not been provided or if it represents an
allocable portion of overhead costs. You have not requested an opinion as to
whether the expenses for which Aetna proposes to be reimbursed are "direct
expenses" within the meaning of regulation section 2550.408c-2(b)(3). See,
in this regard, Advisory Opinion 88-03A (Feb. 29, 1988).